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Hedging against growing risks in oil and gas lending

Date:
April 7, 2020
  • lauren harrell headshot

    Authors

    Lauren Harrell

    Director
    Head of Commodities

    Financial Institutions | Kennett Square, PA

Summary

In a piece written for BAI, Lauren Harrell highlights how banks that loan to the oil and gas industry are being impacted from the second sharp downturn in the past five years.

The price of oil is down more than 50 percent from where it was when the year started, with most of that collapse coming in March. We haven’t seen crude slide so far so fast since the first Gulf War in 1991, and we can expect more volatility at least in the near term.

Oil is being hit on both supply and demand. On the supply side, there is a price war between Russia and Saudi Arabia after they failed to reach an expected deal to cut production and maintain prices. The three-year partnership of OPEC + broke apart as a result. Both sides have stated they will flood the market with production to levels not seen before. On the demand side, COVID-19 has had a dramatic impact on travel (airlines, other transports, etc.) as countries respond to the virus and try to contain spreading.


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About the author

  • Lauren Harrell

    Director
    Head of Commodities

    Financial Institutions | Kennett Square, PA


Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.

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